** This article has been revised from its original version which was published on June…
Owning your own home is widely considered as the American dream. But as any homeowner will tell you, the expenses associated with home ownership can be a nightmare.
Luckily, there are certain tax benefits to paying these expenses. Some homeowners know they can deduct certain expenses from their income tax, but are uncertain of the specifics.
If you file a Form 1040 and itemize your deductions, then you can deduct certain expenses of owning a home. But remember, if you itemize your deductions then you cannot take the standard deduction.
Here are some of the most common DEDUCTION DOs:
- Real Estate Taxes – You can deduct real estate taxes imposed on you. Your tax payments could have been made either directly or through an escrow account.
- Sales Taxes – You may elect to deduct state and local general sales taxes associated with the sale of your home instead of state and local income taxes as an itemized deduction.
- Home Mortgage Interest – If the interest you pay is on a loan secured by your main home or a second home, then it is deductible. The loan can be a first or second mortgage, a home improvement loan, or a home equity loan.
- Mortgage Points Paid at Purchase – You can deduct the interest that you pay at settlement. This is often referred to as points, loan origination fees, maximum loan charges, loan discount, or discount points. Generally you must deduct the points paid over the term of the mortgage and cannot deduct the full amount of points in the year paid. There are exceptions.
- Home Equity Loans – Generally, you can deduct the interest on a home equity loan or home equity line of credit up to $100,000 borrowed, regardless of the loan’s purpose.
Here are some of the most common DEDUCTION DON’Ts:
- Homeowner’s Association – You cannot deduct dues owed or paid to a homeowner’s association.
- Insurance – You cannot deduct the cost of insurance on your home.
- Repairs and Improvements – Generally, you cannot deduct the cost of repairs and/or improvements to your home. There is an exception when the home improvements qualify as a medical expense. The tax benefit of home improvements comes when you sell your home. The cost associated with a capital improvement (not a repair) on your home may increase the basis for your home and help reduce the capital gains when you sell it.
By Eric J. Einhart – Guest Blogger